Source:http://www.telegraph.co.uk/finance/economics/8306323/Middle-class-bears-the-brunt-of-rise-in-inflation.html
The typical middle-class family is bearing the brunt of painful rises in the official inflation rate, according to new analysis which underlines the pressure on Britain's so-called "squeezed middle".
The Government's measure of inflation, the Consumer Prices Index (CPI), hit an eight-month high of 3.7pc in December and is expected to pass 4pc in the next set of figures.
However, the "real" rate of CPI inflation for an average middle-class household is already significantly higher at 4.5pc, according to a study for The Sunday Telegraph by Capital Economics. More than double the Bank of England's 2pc target, the figure represents the fastest pace of price rises faced by many of the households analysed in the research.
"Our typical middle-class family currently has the highest inflation rate of all our groups," said Samuel Tombs, UK economist at the consultancy.
The figures use official data, but are made more representative by creating individual shopping baskets of goods and services for different types of household.
The typical middle-class family is experiencing higher inflation because it is exposed particularly to the sharply rising costs of education, which includes school and university fees, and holidays, said researchers.
Pensioners are next in line with a CPI rate of 3.6pc and there are fears that this could soar past 10pc within months.
The continued climb in energy and food bills, which represent a large share of older people's spending, will take a significant slice out of their budgets, it is feared, as prices are being driven up by increasing global demand and speculation.
"Our measure of a pensioner's inflation could even return to the double-digit rates seen in 2008 later this year if energy and food prices continue to rise," warned Mr Tombs. The average "hard-up" family – on a low income and living in council housing – is not as badly affected, facing an inflation rate of 2.5pc.
However, this group also faces a steep rise, given the large proportion of their spending which goes on food and energy.
The average single young professional is experiencing a 2.9pc rate, while people living at home with their parents appear to be the group most shielded from price rises.
They are experiencing a real CPI rate of just 1.7pc, given the large share of their spending on items where prices have not risen so fast, such as electrical goods like DVD players. However, all households could feel the squeeze intensify, as Capital Economics forecasts that CPI inflation will reach 4.1pc in January and continue at around the 4pc level throughout 2011.
The situation looks even worse when viewed through the retail prices index (RPI), which includes housing costs and council tax which the CPI measure ignores. RPI inflation is already at 4.8pc and set to rise further.
Bank of England policymakers are coming under pressure to raise interest rates to stop inflation climbing higher when they gather this week for their monthly rate-setting meeting.